Hollywood Loves A Good Con: Why We Need a System for Vetting Film Investors

Hollywood Loves A Good Con: Why We Need a System for Vetting Film Investors
Hollywood Loves Good Con: Why We Need System Vetting Film Investors

Slated Editorial Director Colin Brown is back with the final installment essay in his series on packaging films.  You can check out Colin’s writing on the filmonomics blog, and you can see this post in its original format here.

Hollywood has always fallen hard for films about scam artists and their clever schemes. Even before “American Hustle” and “The Wolf Of Wall Street,” there was “Catch Me If You Can,” “House of Games,” “The Spanish Prisoner,” The Grifters, “The Sting,” “Paper Moon” and seductive confidence artists stretching all the way back to “The Lady Eve” in 1941. The cons vary but the tricks remain much the same: victims are fooled into trusting in a stranger’s good faith through greed, vanity, opportunism, desire, compassion, desperation and any other basic urge you can name.

It is easy to see the greenlight appeal of such stories. Not so much because of Hollywood’s own history with charismatic charlatans, or even because their conniving tales can provide such giddy entertainment, but because filmmaking itself so often involves elaborate self-deception and blind trust. The human lust for storytelling, and the constant craving for money required to feed that, is such that some of the strangest bedfellows are thrown together in the name of cinema.

For a taste of just how surreal some of those couplings can be look at the duo behind Envision Entertainment, the financing outfit that burst on the Hollywood scene a couple of years ago. The two men writing the checks at that company, Remington Chase and Stefan Martirosian, are as colorful as many invented movie characters, at least judging by this article in L.A. Weekly that has become the astonished talk of the town.

And yet here they are right in the thick of the Awards season as the backers of the pedigree war drama Lone Survivor that has two Oscar nominations to its name and has just opened number one with a bullet in North America. Chase, according to that article, admits to being an FBI informant; for his part, Martirosian acknowledges altering the spelling of both his first and last name in film credits so as to avoid a contested 1993 cocaine trafficking conviction showing up in online searches – the kind of details that make their involvement in such upcoming projects as The Girl Who Conned The Ivy League so much more tantalizing.

But beyond the lurid backgrounds being reported, all now in the hands of a high-priced crisis lawyer that the pair have hired to help control any reputational fallout, their story speaks volumes about the film industry’s readiness to embrace new financial players – provided their money is seen to be good.

Envision announced itself to the industry at the Toronto International Film Festival in 2011 via a $250 million film fund. A year later, they claimed the fund had been boosted to $525 million. But, as L.A. Weekly points out: “The announcements were not exactly true. There was no ‘fund’ and the numbers were chosen for effect more than accuracy, according to Grant Cramer, an executive VP at Envision.” Whatever the precise truth, the industry bought in: Envision was soon cutting its film financing teeth on productions such as “2 Guns” and “Escape Plan.”

Money alone does not buy you an automatic seat at the industry’s high table where talent relations are critical. For that, you also need bona fides. When Envision launched, they were able to point to an initial partnership with two known low-budget action producers, Randall Emmett and George Furla. In the case of Red Granite Pictures, the newly arrived outfit that sold and bankrolled Martin Scorsese’s “The Wolf Of Wall Street” to the tune of $85 million or more, other connections played their part. Sure, this company was jointly spearheaded by the son of Malaysia’s Prime Minster, who brought in unnamed Asian and Middle Eastern investors. But what really mattered was that the scion in question, Riza Aziz, also happened to be friends with actor/producer Leonardo DiCaprio, who was on full display at Red Granite’s splashy Cannes’ launch party.

With “The Wolf Of Wall Street” crossing $120 million at the global box
office and earning five Academy Award nods including one for Best
Picture, Red Granite has quickly ingratiated itself into the New
Hollywood financing establishment alongside other relative newcomers
such as Megan Ellison’s Annapurna Pictures, which backed both “Her” and
“American Hustle,” and her brother David Ellison’s Skydance Productions,
which co-financed “World War Z” and “Star Trek Into Darkness.”

Having DiCaprio in your camp, or indeed Oracle’s multibillionaire CEO
Larry Ellison as your father, are certainly effective calling cards, but
what about more rank-and-file investors that barely register on Google?
For them, the problem is one of gaining enough access to and trust from
industry gatekeepers to be able to even find suitable projects in which
to invest.

These are the inner circle film projects that have already secured some kind of early industry seal of approval. It’s a dilemma that film finance and packaging consultant Stacey Parks noted in a 2012 blog post that remains relevant now: “As a new investor in the business one of my clients said it’s really tough to get people to believe him and take him seriously when he talks about his film fund. What happens is that agents, lawyers, and managers have heard it all before, only to be burned by fly-by-night full-of-shit amateurs. So they don’t just jump when someone calls and says ‘I have money I want to invest.’ It actually has to all go through the proper channels, which usually means referrals from trusted individuals.”

Knowing who and what to trust in such a shadow-chasing world ought to require the same levels of common sense and due diligence involved in any kind of matchmaking. But passion projects can so often reduce even the most level-headed and business-minded types into fools for love or, worse, propel them into marriages of convenience without even the escape hatch of divorce. This is where Silicon Valley-style vetting can really play its part, particularly now that the SEC has lowered the drawbridge for millions of potential high-net-worth film angels.

As Ted Hope, the new CEO of Fandor, has suggested on a number of posts of his own, it’s high time the independent film business institutionalized its own equivalent of “staged financing.”

How would this play out? In effect, a dynamic two-tier ecosystem of film investor would emerge. There would an elite cadre of early-movers, those educated and resourced enough to be able to evaluate projects, assess finance plans, recognize red flags and weigh up filmmaking teams before committing that all important initial slice of funding. The door is then opened to all other investors, acting individually or in syndicates, to take their cues from this third-party vetting process and decide whether to invest alongside them upon taking all the requisite legal steps.

The key here is ‘skin in the game,’ a nebulous phrase of indistinct origin that means ensuring interests are aligned based on everyone sharing a direct stake in the success or failure of a particular project. Such congruence of interests is critical.

As entertainment lawyer Mark Litwak has warned: “beware of investing in a project where other parties benefit when you lose.”

Over time, as we have already seen in the much younger tech world, newbie investors become seasoned enough themselves to serve as bellweathers of their own to other would-be financiers. Silicon Valley’s diligence system is by no means perfect, of course. Even the most admired and influential angel investors, venture capital firms and tech accelerators can suffer from confirmation bias – as evidenced by the hot water that Y Combinator’s Paul Graham has found himself in for making broad assumptions regarding both female coders and also foreign accents.

Nor does it stop there.

An academic study by two economists that was picked up by The New York Times concluded that investors assign higher share values to companies run by attractive chief executives. Using a Facial Attractiveness Index to measure ‘neoclassical beauty’ – a symmetry-based scoring system under which Yahoo CEO Marissa Mayer was rated 8.45 out of 10, compared with 8.5 for Angelina Jolie and 8.46 for Brad Pitt – the study found that better looking bosses are paid more than less-appealing counterparts.

Shareholders, apparently, are as easily swayed by appearances as they are by numbers. While those with charisma have been shown to be better negotiators, basing decisions based on looks alone clearly has its problems. The same article points out, for example, that another study conducted last year about hedge fund managers found that those rated as more trustworthy, based on their head shots, actually perform worse and generate lower risk-adjusted returns when compared to those perceived as less trustworthy.

In the end, a flawed system for vetting investors is better than no system all. And they only get better as empirical data improves and business wisdom accumulates. The real point here is to recognize that investors themselves are as much a part of the packaging process as talent attachments. You can do your project irreparable damage by jumping at the first money that comes along.

Not only might that money come with too many strings attached, particularly in the area of creative autonomy, but they might also send out the wrong market signals to other investors, not to mention distributors down the road. Not all equity financiers are created equal; some are worth considerably more to your project than money alone, in terms of credibility and the advice that they can provide as business partners and creative champions.

In his book “Thinking in Pictures” that helped inspired this series, filmmaker John Sayles says as much when reflecting back on his early studio-financed film “Baby, It’s You,” on which he didn’t have complete editorial control. “That experience combined with other misadventures in fund-raising has led me to believe that there is such a thing as the right money and the wrong money,” wrote Sayles.

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